SEOUL ⸺ South Korea’s economic growth beat expectations in the first quarter, extending the country’s export-led recovery as global demand surged and the government maintained support for ailing small businesses.
Gross domestic product (GDP) grew a seasonally adjusted 1.6% in the March quarter from three months earlier, the Bank of Korea said on Tuesday, faster than the median estimate of a 1.0% growth in a Reuters poll and following a 1.2% expansion in the December quarter.
Asia’s fourth-largest economy has continued to gain momentum after shrinking 1.0% last year, its worst contraction since 1998, driven by heavy industries such as chip and electronic manufacturing, mostly for exports.
GDP expanded 1.8% year-on-year in the January-March period after shrinking a revised 1.2% three months earlier, also beating an expected expansion of 1.1%.
“Economic growth is peaking this quarter and next, and the momentum is driven by strong capital investment and exports, as factories are racing to fill export orders,” Park Sang-hyun, an economist at Hi Investment & Securities. “Second quarter growth will be just as strong.”
Underpinning the momentum, Hyundai Motor Co last week posted a near tripling of profit to a four-year high in the first-quarter as demand for its luxury cars soared.
Analysts expects profits to also have jumped significantly across South Korean chipmakers such as SK Hynix and Samsung Electronics when they announce first quarter earnings later this week.
The nation’s finance ministry said it expects the economy to grow slightly faster than 3.2%, its earlier projection, as major economies including the United States stage rapid turnarounds and boost demand for Korean exports.
Growth was driven by exports and facility investment, which rose 1.9% and 6.6% quarter-on-quarter, respectively.
Private consumption grew a slower 1.1% on-quarter, after shrinking 1.5% in the previous three months.
In early April, South Korea stepped up restrictions amid fears of a potential fourth wave of COVID-19 outbreaks, with daily cases hitting three-month highs and the vaccination rate staying at just above 4%. The low rate compares with 42% in the United States.
The BOK flagged surging coronavirus cases as fresh downside risks to growth earlier this month, though it saw robust exports and a pickup in consumption continuing to power the economy.
BOK Governor Lee Ju-yeol said earlier in April that “mid-3%” growth was “very possible” this year, up from a previous forecast for 3% growth in 2021.
A Reuters poll on Friday showed economists expect South Korea’s economy to expand 3.4% this year, its fastest annual growth in a decade.
Reporting by Cynthia Kim, Joori Roh; Editing by Kim Coghill and Sam Holmes; Reuters